IRS warns of 12 tax scams to avoid

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(CNN) — As so many massivedata breaches have shown, there’s no way to completely protect your information from swindlers.

But being aware of fraudulent schemes — especially during tax season — can minimize your bad luck. And it can protect you fromIRSpenalties, interest and, in some cases, criminal prosecution if you fall for them.

Here are 12 of the biggest tax scams the IRS is flagging this year:

1. Phone scams: Put simply, anyone who calls or texts you unsolicited and claims to be from the IRS is a fraud. The IRS will never call, text or email you out of the blue. It will never ask you to wire cash or provide bank and credit card numbers. It will never call to threaten you with arrest or deportation.

So, if you’re contacted, don’t give out any information about yourself. Justhang up.

2. Phishing: Emails enticing you to click on a link and give up personal information (name, Social Security number, bank account numbers, etc.) are a scourge of daily life.

This tax season the IRS is seeing a new twist on phishing: Unexpected deposits of tax refunds in your bank account.

Criminals who’ve stolen your tax and banking information from elsewhere file a fraudulent tax return in your name and have the refund deposited in your account. They then will contact you by phone or email pretending to be from the IRS or a collection agency, claiming a refund was deposited erroneously in your account and ordering you to send it to them.

In other email schemes, criminals may pose as your bank or other legitimate institution you know to get you to fork over your passwords, Social Security number and other valuable information.

3. Tax return preparer fraud: Most tax preparers may be honest. But there are still many unscrupulous ones.

One telltale sign of a fraudster: They base their fee on the size of your refund and encourage you to take tax breaks you’re not entitled to or to under-report your income to inflate your refund.

Another: They don’t insist you give them records and receipts. Or they ask you to sign a blank return.

Before giving any information to a new preparer, askfor an IRS Preparer Tax Identification Number. You can also search the IRS directory of credentialed preparers. If he says he’s a CPA, check your State Board of Accountancy. Or for attorneys, check with your State Bar Association.

Also, make sure he can e-file returns. Preparers who have more than 10 clients have to be able to do that.

They may report deductions, credits or exemptions you don’t qualify for. Or they may try to report your taxable income as zero through the use of bogus forms.

5. Falsely inflating income: Some fraudsters try to inflate your income — reporting wages or self-employment income you didn’t earn — to qualify you for a refundable credit like the Earned Income Tax Credit.

6. Falsely padding deductions: Some tax preparers may encourage you to overstate your deductions, such as charitable contributions, to get a larger refund or reduce what you owe.

7. Improperly claiming business credits: If a tax preparer encourages you to take a business credit like the research and development tax credit or the fuel tax credit, make sure you’re eligible first.

8. Making frivolous tax arguments: Did you know that the First Amendment lets you refuse to pay taxes on moral or religious grounds?

Well, it doesn’t. But anyone who tries to snooker you into believing that it does — or tries to sell you on other too-good-to-be-trueideas— is encouraging you to engage in frivolous tax arguments to lower your tax obligations.

9. Abusive tax shelters: If someone tries to sell you on the idea of protecting your money from taxes through a complicated scheme, be wary. It could be an illegal tax shelter.

The IRS this year is particularly attuned to so-called “micro-captive” insurance structures. While some are legitimate, there are cases where “promoters, accountants, or wealth planners persuade owners of closely-held entities to participate in schemes that lack many of the attributes of genuine insurance,” the agency noted.

Before signing on to any type of shelter: Ask the person trying to sell you the product whether she’s collecting a referral fee from anyone, and get a second opinion about the set-up from a trusted, independent tax adviser.

10. Fake charities: Groups asking for money that have names or websites very similar to well-known charities may be scams. To verify whether they’re a qualified charity to which contributions are tax deductible, ask for the group’s Employer Identification Number and enter it into the IRS Exempt Organizations Select Check.

11. Hiding money offshore: There is nothing wrong with having money offshoreso long as you report your foreign accounts to the IRS every year, and pay whatever US taxes are owed on them. But if anyone tries to sell you on an account in another country or non-US territory and promises your money will be protected from US taxes and IRS detection, that’s likely an offshore tax cheating scheme.

12. Identity theft: The good news is reports of tax-related identity theft have gone down. The bad news? It’s still a big risk. Thieves armed with your Social Security number or Individual Taxpayer Identification Number can file a return in your name and claim your refund before you do.

The best way to protect yourself is to be vigilant about not falling for the most prevalent tax scams listed here.